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Dow closes below 10,000 for first time since '04

Wall Street joined in a worldwide cascade of
despair Monday over the financial crisis, driving the Dow Jones
industrials to their biggest loss ever during a trading day. Even a
big afternoon rally failed to keep the Dow from its first close
below 10,000 since 2004.

The sell-off came despite the $700 billion U.S. government
bailout package, which was signed into law Friday after two weeks
in which traders had appeared to count on the rescue as their only
hope to avoid a market meltdown.

At its worst point, the Dow was down more than 800 points, an
intraday record. The stock market rallied during the final 90
minutes of the trading day, and the Dow finished down about 370
points at 9,955.50.

Speculation among traders late in the session that the market's
pullback had been severe enough to force the Federal Reserve into
taking other steps to soothe the markets helped stocks rebound from
their lows of the session.

Markets wobblySpencer Platt/Getty Images

"If you can't say that we're oversold now I don't know what you
say. You're at least due for a bounce if nothing else," said Bill
Stone, chief investment strategist for PNC Wealth Management.

The global plunge in stocks was under way well before Wall
Street ever woke up. In Japan, the Nikkei average lost more than 4
percent. And then the losses spread across Europe - nearly 6
percent for the FTSE-100 in Britain, 7 percent for the German DAX
and more than 9 percent for France's CAC-40.

In the United States, President Bush twice made unscheduled
remarks on the economy, saying in Cincinnati that the economy would
be "just fine" but that the bailout package needed time to work.

The troubles that started with an overheated housing market in
the U.S. have infected financial markets around the world, making
banks fearful of lending to other banks, let alone to businesses
and consumers.

That has led to worries that economies around the
world might not only sputter but slide into reverse.

The market “is displaying one of its worst traits with a herd mentality, and investors have an appetite for feeding on fear.”

Business professor Anthony Sabino

The crush of selling Monday came exactly one week after the Dow
lost 778 points, its biggest closing loss in terms of points. On
that day, the House voted down an earlier bailout package that had
appeared to be a safe bet to pass.

The swings in the Dow on Monday also marked the beginning a
fourth week of tumult in the markets. Triple-digit Dow swings have
been commonplace since mid-September, when investment house Lehman
Brothers went bankrupt and the government stepped in to bail out
insurer American International Group.

But even with the bailout package firmly in place - a plan under
which the federal government will buy bad mortgage-related assets
off the books of banks - investors remain worried that banks are
too fearful to lend and are cutting off air to the economy.

Over the weekend, governments across Europe rushed to prop up
failing banks, while the governments of Germany, Ireland and Greece
also said they would guarantee bank deposits.

U.S. investors
appeared worried the bailout would not be enough to jump-start the
economy. Even other steps, including a Federal Reserve decision to
expand a loan program to squeezed banks, didn't help much.

The sharp one-day tumbles over the last two Mondays don't come
close to the drops that became black marks on the timeline of Wall
Street history.

Black Monday, in October 1987, and stock drops that
preceded the Great Depression were more than 20 percent. Monday's
drop, by comparisons, was less than 8 percent at its worst.

For the day, the Dow lost 3.6 percent. The selling was broad:
Little more than 200 stocks finished the day higher on the New York
Stock Exchange, while about 3,000 finished lower.

At its lowest point Monday, the Dow was down 800.06, at
9,525.32. The benchmark average dipped below 10,000 for the first
time since Oct. 29, 2004, and closed there despite the afternoon
rally.

As an indication of how fearful investors still are,
government-backed debt was in high demand. The yield on the
three-month Treasury bill, which moves in the opposite direction as
its price, fell to 0.43 percent from late Friday at 0.50 percent.
Investors are willing to accept low returns to have their money in
a secure place.

The market "is displaying one of its worst traits with a herd
mentality, and investors have an appetite for feeding on fear," said Anthony Sabino, a professor of law and business at St. John's
University.

But he cautioned it was still not a nightmare scenario.

"Most certainly, this is not the Great Depression of the 1930s,
but (is like) the savings and loan crisis of the 1980s -- and we
bailed them out," he said. "Once people catch their breath,
they'll see this is the proper analogy and this will breathe life
back into banking institutions."